Bakken banks growing faster than peers in shale plays elsewhere

The Bakken energy boom in western North Dakota and eastern Montana has had a catapult effect on banks in the region, helping to fuel rising deposits, fast loan growth and growing profits. But the Bakken is only one of a handful of major, active shale plays across the country. How does the performance of Bakken banks compare with banks in other shale plays?

New research by the Federal Reserve Bank of Minneapolis measured bank performance among banks located inside and outside shale plays in the Bakken, Arkansas, Louisiana, Oklahoma, Pennsylvania and Texas. It found that Bakken banks saw significantly higher growth in deposits, construction and land development loans, and commercial and industrial loans, as well as an increase in profits compared with banks in other shale plays.

“While there are some points of similarity between the relative activity of Bakken banks and banks in other shale areas, the exceptional performance of Bakken banks has generally not been replicated in other shale areas,” noted bank authors Ron Feldman, executive vice president, and Stacy Jolly, financial analyst.

Among the more notable results (see also the accompanying charts at bottom):

• Deposits in Bakken banks increased 49 percent from 2010 to 2012. The next closest shale region was Louisiana, where bank deposits (in shale counties) rose 39 percent, but over a longer period (2008 to 2012).

• Construction and land development loans originating from Bakken banks almost doubled over the previous year ending in March 2013; over the previous three years, these loans grew by 165 percent to $209 million. Commercial and industrial loans within the Bakken saw a more modest rise (29 percent since the end of fourth quarter 2011), but that rate was still much higher than elsewhere. Owing in part to the Bakken’s rural nature and lack of population, residential loans were also higher as workers flocked to the region.

• Profitability of Bakken banks, as calculated by return on average assets, has been slightly higher and more consistent than banks in other shale regions, though banks in Pennsylvania’s Marcellus shale also have seen a persistent rise in profitability since 2009.

For an extensive set of tabbed charts outlining bank performance in shale states, go the original research published online in the fedgazette.